DoubleVerify Holdings, Inc. (DV) Earnings Call Transcript & Summary

Hello, everyone. I'm Andrew Boone. I cover Internet at Citizens. I'm very pleased to host Mark and Nicola from DoubleVerify. I thank you guys so much for being here. We appreciate the support and the conversation.

So let's kick things off with a big picture question. We're going to start kind of strategy and product and then go into some detailed more near-term questions. Mark, talk about DV's key objectives over the next 3 years?

Yes. So I mean we've honed it down to a few things. We're obviously looking to, #1, drive the integration of our media quality optimization, and performance measurement solutions into a single platform. We think there's an incredible value driver there that will enable us to not only create a differentiated business, but a stickier value prop for our customers. So that's #1. As an offshoot of that, we're continuing to invest and lean into driving more growth in our performance solutions. So things like Scibids, which now 40 of our top 100 customers are using and grew over 50% last year and the newly acquired Rockerbox solution as well as our performance measurement solutions like Attention. So, a, that's the second thing. The third actually is an offshoot of the first 2, which is diversifying our customer base into more performance-based customers. We're known for our huge brand customers -- so folks like Unilever and Colgate and Kenview. And now we're increasingly through the types of performance solutions that we've built and grow are moving more into the performance sector as well. So I think that's probably our third main focus. And the fourth is looking at overall growth and focus on diversification into social tools. and it's the walled gardens. So we recently announced a launch of our activation tools on Meta, and we're expanding those across TikTok, et cetera. So those are our main goals. I think all of them together create a diversified client base, a differentiated product and a long-term value proposition that makes us more sticky with the customers that we have and the customers that we're gaining.

What do you think is going to be the biggest product-led growth drivers to that? Is that social prebid, is that the performance? Like -- if I am forcing it to rank order them, but what's kind of what's number one?

I think what's in the basket today, it's social prebid, I think, is the biggest driver. But what will ultimately become, I think, the biggest catalyst for growth is our investment in performance solution and that's both performance measurement as well as Scibids.

Okay. Let's transition a little bit to ABS. You guys launched the product kind of a half decade ago, and it's been tremendous, right? $200 million of revenue this last year. It's adopted by 70% of the top 500 clients. All that's fantastic. But let's talk about growth from here. What does ABS growth start to look like going forward?

Yes. So I mean, you mentioned the stacks, which are impressive, right, $200 million product, 70% of our top 500 use it, and that keeps ticking up, right? So upselling the product to existing clients is continuing to be a driver of growth for the ABS product. Specifically in '25, we also have the moat clients, which we won at sort of basic level products in 2024 that we're going to be able to upsell to ABS. And these are very large sophisticated brand advertisers that understand the power of ABS. So you'll see the benefit of that in '25 onwards. And then I think overall, the success that we've had with ABS is really something that we're going to try to apply in social, right? So the idea of launching the activation part of the product to tie to measurement on social is a little bit of this ABS to measurement that we've had in the Open Web. So replicating that concept to social is really, where we're going to see the growth coming, but ABS, the tough as a product will continue to grow based on what we just described.

Okay. Staying with activation. You talked about Scibids in that first answer. You laid out a $100 million goal.

Yes.

It's impressive. Talk to us about what has to happen there to be able to achieve that?

Yes. So first is greater than 50% growth year-over-year. over the next few years. We had that last year. We had the year that we acquired the business. So, a, just basic numbers, and I think we're well on our way to get there. #2 is expansion into additional platforms. So right now, Scibids is implemented into Google's DV360 into the Trade Desk, into Microsoft Xandr. We're looking for additional expansions in 2 areas on the DSP side, so additional DSPs, which we'll announce this year as well as some applications on the SSP side, so the sell side. So I think that's factor 2, so expansion. And the third thing is further growth of the social applications. So we've been using and very successfully implementing Scibids into YouTube buys. And we've been testing across Meta as well. So I think those 3 things, obviously, just continue to grow. That's more of an output than an input, expanding the DSP and SSP coverage and leaning more into social all of those are in play. We're seeing really good results, and we're really confident that, that $100 million number by '28 is well on its way.

Okay. Prebid for Meta. What does that product enable? And how does it really differ from what you guys are offering before? So just explain the evolution of kind of the social Meta relationship?

Yes. So on Meta, which just, by the way, is around a $40 million business for us. It was a $40 million business last year based on really doing measurement. And what measurement is, is after an ad has been bought on Meta, reporting back to the advertiser, what whether it was viewable, whether it was aligned with our geographic alignment. And in this case, more importantly, was it delivered in a brand safe or brand suitable environment. We are able to do that, but the thing that constrain the growth on that is the fact that advertisers really didn't have the ability to block that impression or filter it out. Now with the new tool, we're able to actually filter out, take the data from that measurement and say we had a violation in category X. I want you to make sure that doesn't happen again by filtering out before I buy it. That's piece one. which is pretty exciting when we first launched, and we're able to do that measure on 13 categories and filter on 13 categories. Recently, when I say recently, with the launch in the last 2 weeks, we've now added an additional 30 categories that we're able to filter out on the prebid side. And those 30 categories are outside of the categories that Meta even filters themselves. So think of now, we have a tool that's independent from Meta that allows advertisers to not only avoid the 13 categories that Meta flags, but 30 additional granular suitability categories. That's pretty exciting for advertisers and to -- and it drives growth for us in 2 ways. The first is that around the half of our top 100 customers use us for Meta measurement, generating that $40 million. Now we have an opportunity to sell them a prebid tool that maps that postbid measurement tool. And we sell that for around 2 to 2.5x per -- the CPM is 2 to 2.5x higher on prebid than postbid, right? So a, opportunity 1 is anywhere from a $80 million to $100 million opportunity, if we sold through all the measurement customers, right? That would be 100% penetration. Opportunity 2 is all of those customers in the top 100, who haven't used us for measurement because they've said, this is great that I can report on this, but I can't block against it. Give me some more power. We now have this flywheel effect, where we can say, look, you can not only measure you can filter so that gives us an opportunity to go back to those customers who maybe said, measurement is great, but I want the ability to block, we can now do that. So that's why we're pretty excited about this. It has multiple impacts on our business. I think it allows us to drive greater penetration, allows us to upsell current customers. And I think over time, it's going to be a real winner for us.

The new categories that are being offered, it sounds like those are more granular?

Yes.

So can just big picture, give an example of what are the existing categories versus some things it's new?

Existing categories are like adult content or terrorism, things that are pretty aggressive -- the more -- the extended categories are a little bit more refined, it may be political discussion or dialogue, it may be more granular takes on sports content, more contextual categories, just more general. That's -- it was my phone a friend here in the audience. So yes, the more granular areas there. And again, it allows for more contextual alignment rather than just safety. And I think that's an important thing to note is when you look at the success products like ABS, authentic brand suitability that has 100 categories plus with multiple levels of suitability. It becomes much more about finding where a brand works as -- as opposed to just avoiding bad stuff, right? And I think that opens up that opportunity for us on Meta as well, which is let's try to refine what really makes sense for us. Like no big CPG brand wants to be against terrible content, but they also don't want to be around content that's not going to work for them, right? So I think that is pretty interesting. We've seen that drive the growth of ABS, and we think that granularity will help growth on social too.

And understood the thesis, right? It's -- and it's 2 weeks. So grain of salt in terms of -- that is very early, but what has the client response been?

It's been great. We have 200 customers plus in our pipeline right now. We launched on the 18th. We already have a handful of customers live in scaling. So the response has been really good. And I think Meta's changes in content moderation policy certainly have created more discussion around the area as well, and that's helped.

Switching to CTV right? You guys disclosed 11% of measurement impression volume in 2024. It feels like CTV in terms of a programmatic sense is certainly like one of those major tailwinds across digital advertising. So help us understand the CTV opportunity for DV, right? Like you guys have been hit multiple times on multiple calls about questions on pricing. What is the opportunity? Do you need price to step up for CTV can be material to results? Or is there -- are we misunderstanding that?

No. I mean, look, we are benefiting from the volume aspect. In Q4, we saw a 95% year-over-year increase in CTV impressions. So like that matters, right? It's still relatively small. But it matters. But I think to get the real impact that you're seeing some other companies in the space getting from the CTV growth, we need to be able to charge a rate commensurate with what the CPMs of the media are. And we still haven't been able to crack that not yet. And part of it is due to the fact that I think we need to align the product and the value prop a little bit more aggressively. That involves a couple of things. #1, getting granular program level data that we can use for suitability measurement, and I think is part of that. And #2, we are working on driving a greater transparency initiative. And actually coming up with a universal content score even at the app level, which I think will drive a more currency like nature to our CTV measurement. I think when we get there and we are leaning into those things, it will allow us to actually start up charging for that -- those CTV impressions as well. But yes, you're right. We've been talking about this for a while. We have a plan in place to actually start building more value in that product, which will give us more room to increase prices.

So a time line that we should think about?

I would say this year, we will be rolling out those solutions. So Stay tuned.

Rockerbox, let's transition. Talk about how it fits into the strategy, right? Bring it back to that performance comment that you made kind of upfront?

You want to take that.

I'll take it. All right. Rockerbox is really a cool one for us. Again, another small -- relatively small tuck-in, but one that extends our story into that performance realm. If you think about what we do now, we're able to measure media quality. We're able to optimize with Scibids and optimize the bid. And now we're actually able to measure whether an ad performed or not and not just whether or not performed on the Open Web, but whether it performed anywhere where that spend occurred. Those 3 things together give us a very differentiated value prop to our advertisers. Rockerbox fits in on the end there and saying everything that you've done until now, what has the impact been? And it's really interesting because the way that we ran across the company was in that second channel when we are optimizing. So Scibids is was working with Weight Watchers as was Rockerbox and Rockerbox was collecting their data and Scibids was looking to optimize against that data. And they were looking to lower the cost of acquisition. So all that acquisition data was in Rockerbox. We were able to leverage Scibids to compress the cost of acquiring a customer by 40% in the first couple of months of that trial. So we found that we have an opportunity to leverage our optimization tool. And if we can pull more data in the performance side, it can feed into there. So that was like thesis #1 is like this just helps us feed our optimization tools. The second is when we look at the big brand advertisers that we work with, folks like Unilever for example, they have DTC brands, right? Rockerbox is working with some of the Unilever DTC brands. We work with the branding aspect of Unilever. We can now sell a complete package for all of Unilever's brands that drive both performance and quality. So the thesis is one platform that helps an advertiser measure quality and optimize quality optimize price with Scibids and then look at the outcome. And I think it's unique in the space. We've talked to advertisers the day of the acquisition, we had several of our largest brand customers call us up and say, "We want to talk to you about this." Also interesting, just like Scibids, there aren't any dominant players in the performance measurement place. There's lots of little point solutions. We can now bring all these point solutions under 1 umbrella and I would challenge you to find an advertiser who says, "I want to work with more companies than less. " They want simple, simple, simple, simple, single platform integrated, and I think we're going to be able to deliver that through Rockerbox through our performance solutions like Scibids or optimization solutions like Scibids and our media quality platform.

Okay. Nicola, let's bring you on the supply side, right? Very strong growth in terms of last year. Talk to us about the drivers of what that growth was? And then how do we think about the sustainability of that going forward?

Yes. So on the supply side, we drove the growth in 24 is 2 things. One is there were more clients that we won, and that created a moment in time to grab more clients. And then within supply side, the retail media component of that number really grew quite well, and we've been discussing retailing for a few years now. The supply side is 10% of our revenue in total. Most of our revenue comes from advertisers paying us directly. On the supply side, it's a SaaS model. So what you see is kind of step function up. We have this moment in time when we successfully got a lot of new clients. It steps up and then we'll kind of stay at that level until we hit new levels of volume for certain of the deals that we have or if we have additional growth on the retail media side. Retail media will continue to grow in that line. We're not anticipating the supply side to all of the sudden be a lot more than 10% of our revenue, but it's a nice growth driver for us. And it's a relationship with companies that we deal with anyway on the DSP side or as an advertiser, right? So Amazon is a perfect example. We have a deal with them on the supply side. We have a deal with them on the DSP side and as an advertiser. So having the entire relationship across ecosystem is important for us.

Let's talk about moat really quickly in terms of -- you mentioned kind of the upsell potential earlier. But talk to us about that cohort. Right? How do we envision that cohort maturing and kind of the key processes that you guys need to enact to be able to get them up to what is like a typical DV customer?

Yes. So we obviously, the scrum is over, and the chips have fallen where they and we acquired a good number of moat customers. So folks like Google, P&G, Inspire Brands, Charter, these are all large brands that have now rolled over to us. As we've noted in the past, they came on board with pretty basic solutions, right? They were just coming on board with the lowest level of -- level of measurement in many cases. We are now in the process of upselling them. So we onboarded them into Q4. We started scaling them. And now it's the upsell process to show the value of combining measurement with prescreen together. So particularly things like ABS. And again, these are big brands. So we think the opportunity for upsell with those brands is pretty significant. We know that the tools work better together. When you use ABS your measurement violations go down. When you use ABS on the prebid side, your performance goes up. So right now, in the process of upselling those customers, the team has targets and goals against that. And I think we've been pretty measured in the scale at which we'll grow those this year. But I think, again, just naming those names, we know that there's big potential there for us.

Okay. So kind of a multiyear process to be able to kind of get them up.

Yes.

Okay. Nicola, talk about pricing, right? I think you guys took price earlier this year. Talk to us about, 1, the contribution of that as we think about the 25% guide something that's small, but help us understand that. And then how do we think about the cadence of pricing going forward?

Yes. So the increase -- so to set the stage, we grew 15% revenue last year and volume growth was 19% -- so we're driven by volume, just verifying more for all of our clients. Within that, obviously, pricing has a factor. The increase -- the price increase we did at the begin of year was very small, and it was sort of specific in certain areas, where we felt we could take a price increase, but it's not the driver of the strategy. I think, as Mark said, the strategy around pricing is, if there's more value, can we charge more CTV, we discussed already is 1 of the opportunities, where once we see we're providing more value than the opportunity to grow price will be more obvious. The opportunity on moat, of course, will happen as well as we continue to upsell. So we think about pricing as, if we can provide premium-priced products then the overall pricing will go up as opposed to a rate increase on services that we already provide. And that's kind of what's happened for the fee that we charge overall. In '25, we still -- we've said this we expect it to continue to decline partly because the moat deals came in at introductory rates, also because we continue to verify more on the measurement side, social and international. It's not a bad problem for us to have as long as volume continues to grow, which is what's really driving the business.

All right. Let's go to some of the near-term issues in terms of relating kind of to the 1Q guide. One large customers kind of volatility impacted results. How do we think about the volatility of this customer going forward and the potential risk for honestly, large customers to continue to be volatile going forward, just given the last year?

Yes, I think -- so this one client obviously had an acute issue that was related to commodity pricing, and that has force them to change their entire media strategy. And so, they're not turning off our service just because they want to turn off their service, if they're changing their entire strategy. And so they're out of our guidance, right? And that's one specific issue. I think for us, we've gotten here by working with very large brands. So it's a successful strategy because they're sophistic clients that understand the power of our tool. What we need to do is to continue to diversify with more large clients, right? That's one strategy. And so once we win Microsoft, Kenview, Google P&G, you kind of see the top of the funnel with more large clients, which is a very good thing to have. The other strategy, obviously, is to diversify into performance tools and the Rockerbox acquisition does that for us. So it's -- we're in the position we're in because our product is successful with large brands. We need to continue to upsell to more large brands and diversify into performance. And once you have that, the impact of one specific client that has acute issues just won't be felt as much.

Let's Mark, bigger picture 1 more really on the Open Web. And so you talked about the secular headwinds and just the shift in the social the move into kind of PMPs and guarantee deals would strike me more as video based. Just talk to us about basically the health of the Open Web. And really, the question is, hey, is this just kind of a display format headwind? Or is it something that's broader?

Yes. I mean, look, we've been talking about dollars shifting into social media platforms for almost a year now. I think we were on the stage last year, and we talked about it. And to us, it was only a headwind. I think it's only going to be a headwind for a very short period of time when we didn't have the commensurate tools there, right? And the ability to launch pre-screen on Meta, which we've done. We have TikTok in alpha right now. We're expanding our YouTube solutions. I think that becomes a big opportunity for us. So ultimately, our drive is to verify everywhere and make sure our tools are everywhere. We're agnostic. And the only time it really hurts us is, when we don't have the tools there, we're getting the tools there. So I think that's a good thing. The overall health of the Open Web, I think, is still good. I think it's changing, and you're looking at more of a driver towards quality, more of a driver towards curated inventory and that's -- one of the announcements we made on earnings was that we're now working with sell-side platforms to help them curate inventory. So you're seeing a little bit of a power dynamic change as well, whereas SSPs are trying to step up and say, "Hey, look, we're part of this dialogue, too. It's not just about the demand side platforms. " And I think part of that has to do with the fact that the growth of private marketplace packages and PG is not just around video. It's around everything. I think you're going to see increasing announcements around curation and sell-side curation taking hold. And again, as long as we are there to take advantage of that, and that's why our announcements with the Google platform with Microsoft Curate with Criteo and with Index Exchange around sell-side curation, means that as Open Web stays healthy. But as the dollars move into different types of packages, as long as we're there, we'll be okay. And I think that's an important part. So overall, Open Web, I think is healthy. It's just the dynamics of it are changing a bit.

All right. One last question. You guys grew headcount 9% last year, right? So just to help us understand kind of the trends, where you guys are making investments. Where did these bodies go within the organization?

Yes. I mean the majority of it was in R&D, right? So we're investing in product innovation. We're investing in integration, not just for the -- in '25 not just with the acquisition, but just also creating the product that includes performance through verifications -- those are the main drivers of the investment that we're making. We will be -- there are opportunities there with AI to do things more efficiently, and we're always looking at those. But the core of the premise here is we need to continue to innovate to create a better product for our customers.

So we should expect those -- that theme of investment to continue in '25?

The theme of our investment will continue. The level of investments, I think as we're getting more efficient, we'll probably subside.

Great. Thank you so much. Appreciate the conversation.

Awesome. Thanks, Andrew.